As some of you know, I’ve been thinking about relocating abroad. I’ve lived in the same 50-mile radius in California for 25 years, with the exceptions of being born in Baltimore and a semester studying abroad in Spain. I think it’s one of the best places for me to live and I never left on purpose—but now I’m want to try something new. One hope I have is to make more international friends. It’d be cool to have friends across the world to visit.
Recently, I had the chance to travel to Japan for work and talk to coworkers about their experience living there. Many of them moved from different countries and built their lives in Japan, which has been inspiring. If things go well, I’m hoping to be living in Japan this time next year.
One conversation with my coworkers really got me thinking. They mentioned how different Japan’s housing market is from the U.S. They have some different requirements for foreigners, but also home values in Japan tend to be more stable, and mortgages are generally lower. Though that’s changing a bit now, it made me curious about whether it’s better to buy or rent a home in general. I’m not looking to buy a house soon, but it’s fun to try to think about this stuff.
I coded a notebook to show when buying a home might make more sense than renting—and vice versa. Since I know some of you studied finance, I’d like you to check my work! One main factor to consider here is opportunity cost. Many people compare rent and mortgage payments and assume buying is better because, ultimately, you own a home. But it’s important to consider what the money for a down payment could earn if invested elsewhere. In my calculations, I assumed investing the down payment in the stock market. Historically, stock market returns have outpaced real estate, though that’s not always the case, and property values vary.
For instance, based on a scenario with a $3,500 monthly rent and a $1.5M home, renting might actually be more cost-effective. I’ve included a plot from the notebook below showing this scenario, along with the numbers I used.
# Input variables
home_price = 1500000
rent = 3500*12
down_payment_percentage = 20
mortgage_rate = 4.5
years = 30
inflation_rate = 0.02
property_tax_rate = 0.01
rate_of_appreciation_stocks = 7
rate_of_appreciation_property = 3
It’s more of a reminder that the answer isn’t always intuitive. Of course, many people buy homes for reasons beyond just finances—owning a home has personal value that can’t always be measured in dollars so buying vs renting is up to you.
Let me know if you catch anything I missed in the calculations.